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NCR announces strong second-quarter results
- Operational results ahead of company expectations
- Revenue growth of 11%, Orders up 19% compared to prior year period
- Gross margin growth driven by significantly higher software revenues
- GAAP diluted EPS from continuing operations of $0.41 compared to $0.28 in the prior year period; non-GAAP diluted EPS from continuing operations(2) of $0.65, an increase of 25% from the prior year period
- Full year 2012 revenue and non-GAAP guidance reaffirmed
NCR Corporation (NYSE: NCR) reported financial results today for the three months ended June 30, 2012. Reported revenue of $1.41 billion increased 11 percent from the second quarter of 2011. Second-quarter revenue includes a negative impact of 4 percent as a result of foreign currency translation.
NCR reported second-quarter income from continuing operations (attributable to NCR) of $67 million, or $0.41 per diluted share, compared to income from continuing operations (attributable to NCR) of $45 million, or $0.28 per diluted share, in the second quarter of 2011. Income from continuing operations in the second quarter of 2012 included $39 million ($28 million or $0.17 per diluted share, after-tax) of pension expense, $10 million ($6 million or $0.04 per diluted share, after tax) of acquisition related amortization of intangibles, $4 million ($3 million or $0.02 per diluted share, after tax) of acquisition related integration costs and a $4 million ($3 million or $0.01 per diluted share, after tax) impairment charge related to an investment. Income from continuing operations for the second quarter of 2011 included $53 million ($38 million or $0.23 per diluted share, after-tax) of pension expense and $1 million ($1 million or $0.01 per diluted share, after-tax) of acquisition related transaction costs. Excluding these items, non-GAAP income from continuing operations(2) in the second quarter of 2012 was $0.65 per diluted share compared to $0.52 in the prior year period.
On June 22, 2012, the company completed the disposition of certain assets of its Entertainment business to Redbox Automated Retail, LLC. The results and guidance included in this release give effect to the disposition.
"Solid financial results and strong order growth in the second quarter, led by our Financial Services and Hospitality businesses, leave us on firm ground to achieve our full year objectives," said Bill Nuti, chairman and CEO of NCR. "U.S. regional banks continue to drive higher revenues as they embrace advanced customer service technologies and we are successfully capturing growth opportunities in key emerging markets as evidenced by order growth in Brazil during the second quarter. We have also continued to invest in innovation, most notably in our small and medium business offerings, with the recent introduction of NCR Silver. Our Hospitality vertical remains on track and we are actively strengthening our presence in key emerging markets such as Brazil. Looking ahead, we are focused on executing upon expanding global opportunities across our verticals while also further growing our software and services revenue and driving profitable growth."
Second-Quarter 2012 Operating Segment Results(2)
As of January 1, 2012, the specialty retail business that was formerly part of the Hospitality and Specialty Retail segment is now included in the Retail Solutions segment, and the hospitality business that was formerly part of the Retail Solutions segment is now included in the Hospitality segment. As a result, the former Hospitality and Specialty Retail segment has been renamed Hospitality.
NCR's Financial Services segment generated second-quarter revenue of $783 million, an increase of 7% from the second quarter of 2011. The increase was driven primarily by growth in the Americas and Europe theaters. The second quarter year-over-year revenue comparison was negatively impacted by 5 percentage points of foreign currency translation.
Operating income for Financial Services was $85 million in the second quarter of 2012 as compared to $77 million in the second quarter of 2011. This increase was driven mainly by higher revenue and an improved mix of software revenue.
The Retail Solutions segment generated revenue of $409 million in the second quarter of 2012, a decrease of 9% from the second quarter of 2011. The decrease resulted from declines in the Americas and Europe theaters and the impact from the movement of specialty retail and hospitality accounts between the Retail Solutions segment and the Hospitality segment, as described above. The second quarter year-over-year revenue comparison was negatively impacted by 2 percentage points of foreign currency translation.
Operating income for Retail Solutions was $28 million in the second quarter of 2012 as compared to $19 million in the second quarter of 2011. The increase was driven by the favorable mix of revenue and the shift in accounts between the Retail Solutions and Hospitality segments, as described above.
The Hospitality segment generated revenue of $130 million in the second quarter of 2012, driven largely by product volumes and services revenue in the Americas theater.
Operating income for Hospitality was $21 million in the second quarter of 2012.
The Emerging Industries segment generated second quarter revenue of $87 million, a decrease of 5% from the second quarter of 2011. The decrease was driven primarily by a slight decline in the Americas theater. The second quarter year-over-year revenue comparison was negatively impacted by 3 percentage points of foreign currency translation.
Operating income for Emerging Industries was $20 million in the second quarter of 2012 and 2011.
Second-Quarter 2012 Business Highlights
In the second quarter of 2012, NCR continued the introduction and deployment of its self-service solutions across its core and emerging industries while continuing to expand its global services business. The following are NCR's second quarter business highlights.
In the Financial Services segment, NCR announced that Central Bank, which services Provo, Utah and the surrounding communities, will deploy 10 NCR SelfServTM ATMs to revamp its ATM network. The new ATMs include NCR's Scalable Deposit Module (SDM) technology, and replace older machines including some from a competing manufacturer. The NCR SelfServTM ATMs that Central Bank will deploy are designed to meet customer demands for fast, convenient service, with the SDM technology enabling consumers to make a deposit twice as fast when compared to a similar transaction at a regular ATM.
Transoft International, the leading provider of currency supply chain management solutions in cooperation with its global partner, NCR, announced that Turkish Economy Bank (TEB) chose Transoft's OptiCash currency management software for its ATM cash optimization. OptiCash is a comprehensive end-to-end currency management software solution that will be used to automate cash forecasting, cost balancing ordering, monitoring, expense tracking and other key functional areas.
NCR also recently introduced NCR Mobile Cash Withdrawal - a new software solution that allows consumers to initiate cash withdrawals from their banking accounts via a mobile device and complete those transactions at an ATM by scanning a 2D barcode. This technology can make ATM transactions faster and more secure by removing cards and PINs from the ATM usage process. In addition to this new technology, NCR has launched an expanded suite of digital signage, kiosk, and managed services tailored to address important needs of community banks and credit unions. The expanded product offering will provide institutions with the opportunity to increase their affinity with consumers by improving the security and availability of their self-service network and to use digital merchandising technologies in their branches to actively promote products and services.
In Retail Solutions, NCR launched NCR Silver this week, a simple and affordable cloud-based point-of-sale (POS) software platform that enables small business owners and entrepreneurs to take payments and manage their entire business with one POS solution. NCR Silver will address long-standing technology disadvantages faced by small businesses to allow them to better run their sales platform, connect with consumers and sell anywhere.
In Hospitality, NCR recently announced the completion of a series of strategic acquisitions in Brazil. The acquisitions should enable NCR to increase and strengthen its overall presence in Brazil where restaurant spending in forecasted to increase by a 9-10% annual growth rate according to Euromonitor. NCR acquired POS Integrated Solutions, a reseller of the NCR Aloha solution for restaurants and Wyse Sistemas de Informatica Ltda., a market leading provider of software solutions including the Colibri suite of hospitality software. NCR also acquired Radiant Distribution Solutions (RDS), an NCR Hospitality hardware distribution partner.
NCR entered into a new agreement with Carlson Restaurants to implement the NCR inventory and labor management solution in all of Carlson's domestic T.G.I. Friday's restaurants. The solution enables multiple back office maintenance efficiencies which should allow restaurant management to spend more time focusing on the service experience for guests. The solution is also designed to help reduce operational and food costs which should unlock capital for use in marketing initiatives and drive growth of the T.G.I. Friday's brand.
NCR also entered into an agreement with Krispy Kreme to implement the NCR Aloha restaurant technology solution in all of Krispy Kreme's U.S.-based corporate-owned sites and to make the solution available to Krispy Kreme franchisees. The solution should enable Krispy Kreme to manage mission critical daily operations at the local level and to leverage the power and freedom of having transactional data, systems configuration and management hosted in the cloud.
In addition, NCR recently launched NCR Customer Voice, a web-based customer loyalty, retention and referral tool that provides restaurant operators with an easy way to survey customers and automate the process for receiving customer feedback. The solution is also designed to provide a powerful low-cost, high-value marketing channel for restaurant operators through its integration with major social media channels including Facebook, LinkedIn and Twitter.
In Emerging Industries, NCR continued to advance its self-service technologies across its key verticals. In Travel, NCR recently showcased a number of products and services that offer a better and faster consumer service in the terminal and gate areas of airports. NCR Mobile Pass is a solution that converts a smartphone into a boarding pass and serves as an expansion of NCR's Mobile Suite, enabling passengers to manage their flight from booking and reservation, to check-in and boarding at the gate. Another product from NCR Travel, NCR Netkey Wayfinding, helps improve orientation in airports and helps passengers find gates, flight information, shops and special offers.
In the Telecom & Technology vertical, NCR achieved two new next-generation data center certifications from Cisco Systems in North America, in Unified Computing Technology and Advanced Data Center Architecture specializations. These designations recognize NCR as having fulfilled the training and program prerequisites to sell, deploy and support the Cisco Unified Computing System (UCS and Cisco Data Center Solutions and position NCR to assist customers in their next-generation data center transformations including data center fabric, virtualization and cloud computing.
During the second quarter NCR's global services business continued to expand its global footprint. NCR and Aruba Networks announced a global agreement that enables NCR to provide Aruba support services to Aruba resellers as part of its managed services agreements with its core customer segments, including service providers and telecommunications carriers. The agreement builds on NCR's existing Aruba ServiceEdge partner status, through which NCR provides Aruba deployment services, delivering a full range of wireless networking services to Aruba channel partners, ranging from planning and design to site surveys, installation, and moves, adds and changes.
In addition, NCR and Bank of New Zealand jointly won the highly coveted "Best ATM Installation and Management Project at the Asian Banker 2012 Technology Implementation Awards." This marks the third consecutive win for NCR and recognizes Bank of New Zealand's world-first deployment of NCR Predictive Services, a unique technology that anticipates ATM failures before they occur and proactively schedules maintenance to maximize uptime. The technology has reduced the downtime of Bank of New Zealand's ATM fleet by one-third and driven an extra 20,000 hours of ATM uptime across the institution's network.
Second-Quarter 2012 Financial Highlights
Income from operations was $101 million in the second quarter of 2012, which included $39 million of pension expense, $10 million of acquisition related amortization of intangibles, and $4 million of acquisition related integration costs. This compares to $62 million of income from operations in the second quarter of 2011, which included $53 million of pension expense and $1 million of acquisition related transaction costs. Excluding these items, non-GAAP income from operations(2) was $154 million in the second quarter of 2012 compared to $116 million in the second quarter of 2011.
Net cash provided by operating activities was $31 million during the second quarter of 2012 compared to $71 million in the year-ago period. Net capital expenditures of $37 million in the second quarter of 2012 increased slightly from $36 million in the second quarter of 2011. Free cash used (net cash from operations and discontinued operations, less capital expenditures for property, plant and equipment, and additions to capitalized software)(3) was $41 million in the second quarter of 2012, compared to zero in the second quarter of 2011. Both cash from operating activities and free cash used in the second quarter of 2012 were negatively impacted by additional pension contributions.
Discontinued operations resulted in $64 million of cash inflow in the second quarter of 2012 and $35 million of cash outflow in the second quarter of 2011. The change was primarily driven by the $100 million of proceeds from the sale of the company's Entertainment business.
NCR contributed approximately $52 million to its international, executive and U.S. qualified pension plans in the second quarter of 2012 compared to $24 million in the second quarter of 2011. The net funded status of the company's global pension plans was approximately $(1.3) billion as of December 31, 2011.
Other expense, net was $13 million in the second quarter of 2012 compared to other expense, net, of $2 million in the prior year period, mainly due to higher interest expense in the current period.
Income tax expense was $21 million in the second quarter of 2012 compared to income tax expense of $13 million in the second quarter of 2011.
NCR ended the second quarter of 2012 with $377 million in cash and cash equivalents compared to a balance of $414 million as of March 31, 2012. As of June 30, 2012, NCR had a total debt balance of $740 million compared to a total debt balance of $827 million as of March 31, 2012.
NCR expects full-year 2012 revenues to increase in the range of 11 to 13 percent on a constant currency basis compared with 2011.
NCR expects its full-year 2012 Income from Operations (GAAP) to be $362 million to $377 million, non-pension operating income (NPOI)(2) to be in the range of $570 to $585 million, GAAP diluted earnings per share to be $1.45 to $1.52 and non-GAAP diluted earnings per share(2) to be in the range of $2.40 to $2.47 per diluted share. The 2012 non-pension operating income (NPOI) and non-GAAP diluted EPS guidance excludes estimated pension expense of $165 million (approximately $119 million after-tax) compared with actual pension expense of $222 million ($155 million after-tax) in 2011 and amortization of intangibles from the Radiant acquisition of approximately $35 million ($24 million after tax). NCR expects approximately $40 million of Other Expense, net including interest expense in 2012 and its full-year 2012 effective income tax rate to be approximately 27 percent.
The company expects third quarter 2012 non-pension operating income (NPOI)(2) to be in the range of $140 million to $146 million, compared to $123 million in the third quarter of 2011, and third quarter 2012 income from operations to be in the range of $88 million to $94 million, compared to $28 million in the third quarter of 2011. We expect the third quarter 2012 tax rate to be approximately 30 percent.
The results and guidance included in this release give effect to the company's June 22, 2012 disposition of its Entertainment business.
2012 Second Quarter Earnings Conference Call
A conference call is scheduled today at 4:30 p.m. (EST) to discuss the company's 2012
second quarter results and guidance for full-year 2012. Access to the conference call, as well as a replay of the call, is available on NCR's Web site at http://investor.ncr.com/. NCR's web site (www.ncr.com) contains a significant amount of information about NCR, including financial and other information for investors (http://investor.ncr.com.). NCR encourages investors to visit its web site from time to time, as information is updated and new information is posted.
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